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Monday, April 15, 2013

Slovenia isn't Cyprus, but that doesn't Mean it's Not in Trouble

Leo Tolstoy wrote that all happy families are alike, but each unhappy
family is unhappy in its own way. Much the same is true of economies.
Maybe that was what EU Commission President Jose Barosso had in mind
when he said recently that, “it is a completely different situation in
Cyprus and in Slovenia.” Different, but in many ways no less dangerous.
For those struggling to keep up with the ever-evolving euro crisis, here
are some of the key ways in which the impending crisis in Slovenia
differs from—and resembles—the others.

The macroeconomic context

As in many other countries, the crisis in Slovenia, which now centers
on the banking system, has developed against a background of broader
macroeconomic problems. Not long ago, Slovenia’s economy was doing well.
The country was one of the ten that entered the EU in 2004. Like others
in its cohort, it initially enjoyed rapid economic growth. The
following chart, which compares Slovenia’s economic growth since 2000
with selected other countries, shows that before the global financial
crisis, Slovenia looked a lot like Poland, one of the EU’s biggest
success stories. Since the crisis, it has looked more like Portugal.

What accounts for the shift from success story to problem case?
Although many factors were at play, two were especially significant. >>>Read more

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